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Articles Posted in Tax Relief
MO AG Sues Tax Resolution Firm
JK Harris didn’t provide promised services to Missourians who sought help with tax problems, Nixon says in lawsuit
Jefferson City, Mo. – A South Carolina company that advertises it can help consumers resolve their state and federal tax problems didn’t provide the services it promised, Attorney General Jay Nixon says. Nixon filed a lawsuit today seeking full restitution from JK Harris & Company LLC (JKH) for its Missouri customers who received neither the services for which they paid as much as $4,500 each nor the refunds they requested.
“JK Harris promises it can help consumers who are having tax problems, but the Missourians who complained to my office told a different story – one of unreturned phone calls, lost paperwork, and a worse financial situation than when they started,” Nixon said.
The JKH Web site tells consumers the company has a step-by-step strategy – known as “The Process” – to help consumers with their tax problems. According to JKH, “The Process” includes providing immediate relief to consumers by attempting to stop collection activities by the IRS; assigning a case specialist to review the consumer’s information and begin work on resolving the customer’s tax problems; and submitting an offer to the IRS to resolve the customer’s tax problems.
Real Estate Gift Tax
Tiered discount allowed in real estate FLP gift tax case In Astleford, a memorandum decision, the Tax Court permitted a taxpayer to apply a tiered discount in the context of a family limited partnership owning interests in real estate.
Facts. On 8/1/96, Mrs. Astleford formed the Astleford Family Limited Partnership (“AFLP”) to facilitate the continued ownership, development, and management of various real estate investments and partnership interests she owned and to facilitate gifts that she intended to make to her three adult children. On the same day, Mrs. Astleford transferred to AFLP ownership of an elder care facility. Also on the same day, Mrs. Astleford gave each of her three children a 30% limited partner interest in AFLP and retained for herself a 10% general partner interest.
On 12/1/97, Mrs. Astleford made additional capital contributions to AFLP by transferring to AFLP a 50% interest in Pine Bend Development Co. (“Pine Bend”), a general partnership, and her interest in 14 other real estate properties. The Pine Bend general partnership agreement did not contain any provisions relating to the transfers of interests in Pine Bend or whether such transferred interests would be general partner or assignee interests. Pine Bend owned 3,000 acres of land of which 1,187 acres consisted of agricultural farmland (“Rosemount property”).
Cost of Goods Deductibility
Deduction for cost of goods sold limited to negotiated discount price IRS concluded in this ILM that the step transaction doctrine applied to the repayment to companies of the difference between the full list price of merchandise and the negotiated discount price, and therefore the companies’ deduction for cost of goods sold (COGS) was limited to the negotiated price.
Facts. U.S. companies paid the full list price for merchandise and were reimbursed for the difference between the full list price and the negotiated discount price.
IRS analysis. The Service concluded that this transaction met all three tests applied by the courts in determining whether the step transaction doctrine should be invoked:
Mortgage Interest Deductibility
Beneficial owners can deduct home mortgage interest and taxes The Tax Court held that taxpayers were entitled to deduct mortgage interest and real estate taxes they paid on property owned by their son, because they were the beneficial owners of the property.
The taxpayers resided at the property for all of 2003. During that time, title to the property was in the name of their son, as was the mortgage on the property. Their son had obtained a mortgage loan and took title to the house to procure it for the taxpayers who were unable to secure a loan because of financial difficulties. The son did not live on the property, and the taxpayers paid for all maintenance of, and taxes on, the property. Mortgage payments from 2001 until the time of the trial were made through Camrock General Engineering, Co. Camrock was the taxpayers’ company; one taxpayer was its registered agent and the other its president. After the taxpayers moved from the residence, they served as landlords; they rented the property to a tenant and performed all services related to that tenancy
The taxpayers claimed on their 2003 federal income tax return deductions for home mortgage interest and real estate taxes of $3,522 and $3,194, respectively, on the residence property. The IRS contended that because the taxpayers had no legal obligation to make the mortgage payments and did not hold title to the property, they were not entitled to deduct the mortgage payments. The Service further argued that the taxpayers did not make the mortgage payments; the payments were made by Camrock.
CA LLC Fee Invalid
California LLC fee again held invalid
Ventas Finance I LLC v. Calif. FTB, Cal. Ct. App., Dkt. Nos. A116277; A117751, 08/11/2008
The California Court of Appeal once again has ruled invalid the state fee imposed on limited liability companies (LLCs) under former Rev. & Tax. Cd. § 17942 (the “§ 17942 fee”). Affirming the lower court, the Appeal Court held that the § 17942 fee as applied to Ventas, an LLC that conducted business in California and other states, was not fairly apportioned and, therefore, violated the Commerce Clause because the levy was based on total income without apportionment to income attributable to, or derived from, California sources. The court rejected the Franchise Tax Board’s (FTB’s) request for judicial reformation of the former statute to allow an apportioned fee refund since Ventas did business in California and other states unlike in the earlier Northwest case (that held the fee invalid) where the LLC conducted no California business. However, the court concluded that neither federal due process nor any principle of California law requires the FTB to refund the entire amount that Ventas paid. Consequently, the refund should be limited to the amount Ventas paid for the years in issue that exceeds the amount that would have been assessed, without violating the Commerce Clause, using a method of fair apportionment. The postjudgment order awarding attorney fees was also reversed, and remanded for the lower court to redetermine eligibility and the amount of reasonable fees in light of the partial reversal of the lower court’s judgment.
IRS pledges better collection of business taxes
IRS official pledges improved collection of billions in unpaid payroll taxes from businesses
WASHINGTON (AP) — A top IRS official promised Congress Tuesday that the agency “will do better” in collecting billions in taxes that businesses supposedly withheld from employees’ paychecks but never remitted to the government.
Linda Stiff, a deputy Internal Revenue Service commissioner, agreed with senators — who criticized the agency’s enforcement efforts — that the loss of about $58 billion in payroll taxes estimated to be owed the government is unacceptable. She said the IRS has made collecting those taxes a high priority.
While too high, the $58 billion “represents a snapshot of unpaid employment taxes” as part of a long-term improvement effort, Stiff testified at a hearing of the Senate Homeland Security Committee’s investigative panel. “Our numbers show dramatic improvement in the last several years, but we know we still have a long way to go.”
IRS Demutualization Ruling
Court rebuffs IRS and allows policyholder to escape gain on demutualization
Eugene A. Fisher et al. v. U.S. (Ct Cl 8/6/2008) 102 AFTR 2d ¶ 2008-5150
The Court of Federal Claims has applied a variation of the open transaction doctrine with the result that a policyholder had no gain to report when it chose a cash option in connection with a demutualization of an insurance company. Under this option, the shares awarded to the policyholder were immediately sold by the company and the proceeds were then paid to the policyholder in cash. IRS said that the policyholder was taxable on the full amount of the gain without being able to allocate any of his basis in the contract to offset the sales proceeds. The Court allowed the policyholder to use his basis in the contract (which greatly exceeded the amount of the sales proceeds) to fully offset the proceeds and thus to report no gain.
Tax Shelter IRS Resolution
New IRS settlement initiative for LILO and SILO transactions
IRS recently announced a settlement initiative for Lease-In/Lease-Out (LILO) and Sale-in/Lease-Out (SILO) transactions. Under this initiative, more than 45 of the nation’s largest corporations that participated in these shelters will receive a letter with an offer. Shelter participants will have 30 days to make a decision to accept the offer. Taxpayers would have to concede 80% of certain claimed tax breaks but they would not be hit with accuracy-related penalties.
Charitable Contribution
Proposed regs explain strict charitable contribution substantiation & appraisal rules Preamble to Prop Reg 08/06/2008; Prop Reg § 1.170A-15, Prop Reg § 1.170A-16, Prop Reg § 1.170A-17, Prop Reg § 1.170A-18
IRS has issued proposed regs explaining the charitable contribution substantiation changes made by the American Jobs Creation Act of 2004 (AJCA) and the Pension Protection Act of 2006 (PPA). The proposed regs, which would be effective for contributions made after the date final regs are issued, also would provide guidance on what constitutes qualified appraisals and qualified appraisers for purposes of the substantial rules for noncash gifts.
